Risk stripping system and method

ABSTRACT

A method is provided for managing risk associated with at least one financial transaction wherein each of the at least one financial transactions having at least a first risk factor and a second risk factor. The method includes a first step of receiving one of the at least one financial transactions. Next, in a second step, the first risk factor is transferred to a first risk book. The second risk factor is then transferred to a second risk book, in a third step. Next, in a fourth step, another of the at least one financial transactions is received. Finally, the second through fourth steps are repeated for each of the at least one financial transactions.

BACKGROUND

[0001] The following invention relates to a method and system formanaging risk and, in particular, for precisely hedging the risksassociated with a plurality of financial transactions.

[0002] Transactions involving financial instruments generally haveassociated therewith a number of risk factors. For example, a foreignexchange (“FX”) forward transaction, in which there is an agreement tobuy one currency against another currency at a specified future date atan agreed upon price, includes an interest rate risk factor (theabsolute value of each currency may change) and an FX risk factor (theexchange rate may change by the future date). Other transaction typespresent different risk factors including, by way of non-limitingexample, collateral risk, volatility risk individually as well as invarious combinations.

[0003] Traders engaging in such transactions try to minimize the riskfactors by using various hedging techniques. For example, a tradertrading on behalf of a financial institution may engage in numeroustransactions that each require the trader to pay out a certain sum ofU.S. dollars at a future date. In order to eliminate the risk in thetrader's book associated with the possible fluctuation of U.S. interestrates, the financial institution deposits in an interest bearing accountan amount of U.S. dollars that will equal the total sum of U.S. dollarsthe trader is required to pay on the future date. In this way, theinterest rate risk associated with the trader's positions is removedfrom the trader's book and is carried by the financial institution. Thefinancial institution performs a similar hedging transaction for all itstraders so that the total interest rate risk generated by trading onbehalf of the financial institution is aggregated in a single interestrate risk book. The financial institution may then engage in additionaltransactions to hedge the risk associated with the interest rate book.

[0004] The typical procedure used to hedge the risk associated with atrader's book is to “net out” the trader's positions per instrumentclass and hedge the risks associated with each instrument class. So, forexample, if the trader has five FX forward positions in which the tradermust deliver a total of $120M US by January 27^(th), a hedgingtransaction is performed in which the financial institution depositsinto a money market account a sufficient amount US dollars so that $120MUS is available by January 27^(th). Thus, the trader's entire interestrate risk associated with the trader's FX forward positions istransferred to the financial institution's interest rate risk book.Similarly, the risks on the trader's book associated with otherinstrument classes, such as, for example, swaps and money markets, arehedged and transferred to the risk books of the financial institution.

[0005] Several inefficiencies exist with hedging a trader's book in thismanner. First, the process of netting all a trader's positions in aparticular instrument class, for example FX forward contracts, todetermine the trader's interest rate risk in US dollars ignores thedifferent FX risks that may be associated with each FX forward contract.For instance, the trader's FX forward positions may include US/CHF andUS/JPY forwards that each present a different FX risk. While netting allthe trader's FX forward contracts is useful in hedging the trader's USinterest rate risk, it does not account for the trader's FX risksassociated with the US/CHF and US/JPY exchange rates.

[0006] Furthermore, because the netting of the trader's book and thetransfer of the risk on the trader's book to the financial institution'srisk book occurs periodically, perhaps once a week, the hedge at the endthe period reflects the risks at the time of the hedge but may notaccurately reflect the risks that existed at the time of the trade. Forexample, if the interest rate risk associated with a trader's FX forwardcontracts are netted and hedged once a week, then any hedgingtransaction at the end of the week may not precisely hedge the interestrate risk of each FX forward contract if interest rates varied duringthe week. Such imprecise hedging may expose the financial institution tosignificant risks, especially as the number of transactions to be hedgedincreases.

[0007] Accordingly, it is desirable to provide a method and system forprecisely hedging the risks associated with financial transactions.

SUMMARY OF THE INVENTION

[0008] The present invention is directed to overcoming the drawbacks ofthe prior art. Under the present invention, a method is provided formanaging risk associated with at least one financial transaction whereineach of the at least one financial transactions have at least a firstrisk factor and a second risk factor. The method includes a first stepof receiving one of the at least one financial transactions. Next, in asecond step, the first risk factor is transferred to a first risk book.In a third step, the second risk factor is then transferred to a secondrisk book. Next, in a fourth step, another of the at least one financialtransactions is received. Finally, the second through fourth steps arerepeated for each of the at least one financial transactions.

[0009] In an exemplary embodiment, the first risk factor is an interestrate risk, the first risk book is an interest rate risk book, the secondrisk factor is an FX risk and the second risk book is an FX risk book.

[0010] In another exemplary embodiment, one of said at least onefinancial transactions has a third risk factor and the third risk factoris transferred to a third risk book.

[0011] In yet another exemplary embodiment, one of the at least onefinancial transactions has a fourth risk factor and the fourth riskfactor is transferred to a fourth risk book.

[0012] In still yet another exemplary embodiment, the third risk factoris a collateral risk, the third risk book is a collateral risk book, thefourth risk factor is a volatility risk and the fourth risk book is avolatility risk book.

[0013] In an exemplary embodiment, the first risk factor is an interestrate risk, the first risk book is an interest rate risk book, the secondrisk factor is a collateral risk, the second risk book is a collateralrisk book, the third risk factor is a volatility risk and the third riskbook is a volatility risk book.

[0014] In another exemplary embodiment, the first risk factor is aninterest rate risk, the first risk book is an interest rate risk book,the second risk factor is a volatility risk, the second risk book is avolatility risk book, the third risk factor is an FX risk and the thirdrisk book is an FX risk book.

[0015] In yet another exemplary embodiment, the first risk factor is anFX risk, the first risk a book is an FX risk book, the second riskfactor is a collateral risk, the second risk book is a collateral riskbook, the third risk factor is a volatility risk and the third risk bookis a volatility risk book.

[0016] In still yet another exemplary embodiment, one of the at leastone financial transaction is an FX forward contract between a firstcurrency and a second currency having a delivery date, and includes thesteps of borrowing money in the first currency to be payable on thedelivery date, depositing money in the second currency to be received onthe delivery date and executing a spot transaction between the firstcurrency and the second currency.

[0017] In an exemplary embodiment, one of the at least one financialtransactions is a gold lease having a delivery date and providingperiodic interest payments in a first currency and includes the steps ofexecuting a zero-coupon gold deposit to be payable on the delivery date,executing a note being due on the delivery date, the note requiringperiodic interest payments to be made in the first currency, executing azero-coupon loan in the first currency to be paid on the delivery dateand executing a spot transaction between said first currency and asecond currency.

[0018] In another exemplary embodiment, the first risk factor includedin the first risk book and the second risk factor included in the secondrisk book are hedged.

[0019] In yet another exemplary embodiment, the third risk factorincluded in the third risk book and the fourth risk factor included inthe fourth risk book are hedged.

[0020] Under the present invention, a system for managing risk isprovided and includes at least one trader book, the at least one traderbook including a plurality of transactions wherein each of the pluralityof financial transactions has a first risk factor and a second riskfactor. Also included is at least a first risk book and a second riskbook. A risk stripping module being in communications with the at leastone trader book and with the first risk book and second risk book isincluded. When the risk stripping module receives each of the pluralityof transactions, the risk stripping module executes a first hedgingtransaction for transferring the first risk factor to the first riskbook and a second hedging transaction for transferring the second riskfactor to the second risk book.

[0021] Accordingly, a method and system is provided for preciselyhedging the risks associated with financial transactions.

[0022] The invention accordingly comprises the features of construction,combination of elements and arrangement of parts that will beexemplified in the following detailed disclosure, and the scope of theinvention will be indicated in the claims. Other features and advantagesof the invention will be apparent from the description, the drawings andthe claims.

DESCRIPTION OF THE DRAWINGS

[0023] For a fuller understanding of the invention, reference is made tothe following description taken in conjunction with the accompanyingdrawings, in which:

[0024]FIG. 1 is a system for managing the risk associated with aplurality of financial transactions, in accordance with the presentinvention;

[0025]FIG. 2 is a flowchart describing the hedging activity performed bythe system of FIG. 1;

[0026]FIG. 3 is a series of graphs illustrating the application of thepresent invention to a one-year 100 USD/CHF FX forward transaction; and

[0027]FIG. 4 is a series of graphs illustrating the application of thepresent invention to a one-year gold lease transaction.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

[0028] Referring now to FIG. 1, there is shown a system 1 for managingthe risk associated with a plurality of financial transactions, inaccordance with the present invention. System 1 includes a plurality oftrader books 3 each containing a plurality of financial transactions theparticular trader has executed on behalf of a financial institution.Trader books 3 may be any device capable of receiving, storing andtransmitting financial transactions including, by way of non-limitingexample, a personal computer executing software according to well-knowntechniques. Each of the financial transactions in trader books 3 mayhave associated therewith any of a plurality of risk factors including,by way of non-limiting example, an interest rate risk factor, an FX riskfactor, a volatility risk factor and a collateral risk factor.

[0029] System 1 also includes a risk stripping module 5 that receiveseach of the plurality of financial transactions from each of the traderbooks 3 and separates out from each of the plurality of transactions thedifferent risk factor types using hedging transactions. Risk strippingmodule 5 may be, by way of non-limiting example, a personal computerthat executes software, designed using well-known techniques, to receivefinancial transactions from trader books 3 and to interface withfinancial markets 9 for performing the required hedging transactions.For each financial transaction, risk stripping module 5 performs atleast one hedging transaction, via access to financial markets 9, thatremoves from the trader's book a first risk factor associated with theparticular financial transaction. Risk stripping module 5 then performsa second of hedging transactions that removes from the financialtransaction a second risk factor. In an exemplary embodiment, riskstripping module 5 performs a third and fourth hedging transaction toremove a third and fourth risk factor from the particular transaction.

[0030] The process of removing the various risk factors associated withfinancial transactions included in traders' books 3 necessarily createsother risks. For example, the hedging transactions used to strip out theinterest rate risk factor and FX risk factor, as in the exampledescribed below, necessarily creates additional interest rate risks andFX risks. These risks, however, are tied to the different hedgingtransactions used to strip out the various risk factors so thesedifferent risk factors may then be separated and aggregated. Thus, whilethe original financial transaction may include both and interest rateand FX risks, after the hedging transactions each of the risk factorsare associated only with a related hedging transaction.

[0031] Risk stripping module 5 then assigns the hedging transactions toone of a plurality of risk books 7. In an exemplary embodiment, riskbooks 7 include an FX risk book 7(1), an interest rate risk book 7(2) acollateral risk book 7(3) and a volatility risk book 7(4). In anotherexemplary embodiment, additional risk books may be included such as, byway of non-limiting example, a basis risk book and a credit risk book.Furthermore, any of risk books 7 may be further subdivided—fir example,volatility risk book 7(4) may be subdivided into an interest-ratevolatility book, an FX volatility book and a bond volatility book. Riskbooks 7 may be, by way of non-limiting example, a personal computer thatexecutes software, designed using well-known techniques, to receivehedging transactions from risk stripping module 5. Risk stripping modulethen assigns each hedging transaction to the particular one of riskbooks 7 associated with the risk the particular hedging transactionstripped. Consequently, each one of risk books 7 aggregates hedgingtransactions that only include a risk factor associated with thatparticular risk book. Subsequently, the financial institution mayexecute further hedging transactions, using well-known techniques, tohedge the risks associated with each of risk books 7. Thus, riskstripping module 5 removes the risk associated with financialtransactions on traders' books 3 and transfers those risks to acorresponding one of risk books 7.

[0032] Referring now to FIG. 2, there is shown a flowchart describingthe hedging activity performed by risk stripping module 5. Initially, inStep 1, risk stripping module 5 receives a financial transaction fromone of trader books 3. In Step 2, it is determined whether theparticular financial transaction includes an FX risk component.Financial transactions that have an FX risk component include, by way ofnon-limiting example, FX forward contracts and FX spot transactions. Ifthe particular financial transaction includes an FX risk, then in Step3, risk stripping module 5 executes an FX risk hedging transaction fortransferring that FX risk to FX risk book 7(1). Next, in Step 4, it isdetermined whether the particular financial transaction includes aninterest rate risk component. Financial transactions that have aninterest rate risk component include, by way of non-limiting example,include FX forward contracts and money-market transactions. If theparticular financial transaction includes an interest rate risk, then inStep 5, risk stripping module 5 executes an interest rate hedgingtransaction for transferring that interest rate risk to interest raterisk book 7(2). Next, in Step 6, it is determined whether the particularfinancial transaction includes a collateral risk component. Financialtransactions that have a collateral risk component include, by way ofnon-limiting example, a gold lease. If the particular financialtransaction includes a collateral risk, then in Step 7, risk strippingmodule 5 executes a collateral risk hedging transaction for transferringthat collateral risk to collateral risk book 7(3). Next, in Step 8, itis determined whether the particular financial transaction includes avolatility risk component. Financial transactions that have a volatilityrisk component include, by way of non-limiting example, options, optionson interest-rate futures, futures, call money transactions and any typeof transaction containing an implied optionality. If the particularfinancial transaction includes a volatility risk, then in Step 9, riskstripping module 5 executes a volatility risk hedging transaction fortransferring that volatility risk to volatility risk book 7(3).

[0033] Referring now to FIG. 3, there is shown a series of graphs thatillustrate the risk stripping techniques of the present invention asapplied to a one-year 100 USD/CHF FX forward transaction. Under theterms of the transaction, in this example, the financial institutionwill exchange 177.55 CHF for 100 USD in one year, as shown in Step 31.In order to remove the FX and interest rate risks associated with the FXforward transaction, initially, in Step 32, risk stripping module 5causes a spot transaction to occur in which 94.3 USD is sold for 170.96CHF based on a spot transfer rate of, for illustrative purposes, 1.81.Next, in Step 33, a money market deposit transaction is executed by riskstripping module 5 in which 170.58 CHF, taken from the 170.96 CHFreceived in Step 32, is deposited at a transfer rate of 4.08% and whichtherefore yields 177.55 CHF in one year. In Step 34, a money market loantransaction is executed by risk stripping module 5 in which 94.3 USD isborrowed at a rate of 6.045% and that incurs a repayment obligation of100 USD in one year. Netting the transactions executed by risk strippingmodule 5 both at spot and in one year, the entire interest rate risk andFX risk is removed from the trader's FX forward transaction and thetrader is left with a net position of +0.38 CHF at spot.

[0034] After the risk stripping technique is applied to remove theinterest rate and FX risks from the trader's book, there remains aninterest rate risk associated with the money market deposit transactionin Step 34 and the money market loan transaction in Step 33. Thisinterest rate risk is then assigned to interest rate risk book 7(2) thataggregates all the interest rate risks that are stripped out of tradertransactions. The financial institution then performs further hedgingtransactions to hedge the interest rate risk contained in interest raterisk book 7(2) using known hedging techniques. In addition, thereremains an FX risk associated with the transaction of Step 33. This FXrisk is then assigned to FX risk book 7(1) that aggregates all the FXrisks that are stripped out of trader transactions. Here too thefinancial institution may then perform further hedging transactions tohedge the FX risk contained in FX risk book 7(1) using known hedgingtechniques.

[0035] Referring now to FIG. 4, there is shown a series of graphs thatillustrate the risk stripping techniques of the present invention asapplied to a one-year gold lease transaction. Initially, in Step 41, afinancial institution enters into a gold lease in which the financialinstitution deposits 1577.973 ounces of gold to a client for one yearfor which the financial institution receives interest payments everythree months at a rate of 2.5% (for a total of 8521 USD) and alsoreceives 1577.973 ounces of gold in one year. The gold lease transactionincludes three distinct risk factors. A first risk factor is acollateral risk deriving from the possibility that the client won'treturn the deposited gold to the financial institution at the end of theyear. A second risk factor is an interest rate risk based on thepossibility that prevailing interest rates may rise after the gold leasetransaction is executed in which case the quarterly interest paymentsthe financial institution receives will be below market rate. A thirdrisk factor is a currency risk that arises if, for example, thefinancial institution is Swiss and desires to convert the interestpayments received in USD into CHF. Using the method of the presentinvention, as will be described below, each of these risk factors arestripped out from the trader book that is holding the gold leasetransaction and the risk factors are transferred to the appropriate riskbook maintained by the financial institution.

[0036] In order to remove the collateral risk associated with the goldlease transaction, in Step 42 a zero-coupon gold deposit is executed byrisk stripping module 5 in which the financial institution borrows1535.74 ounces of gold at spot at a rate of 2.75% and repays 1577.973ounces of currency gold in one year. Next, in Step 43, a note isexecuted by risk stripping module 5 in which 142,017.60 USD is borrowedat a transfer rate of 6.0% and in which quarterly interest payments inUSD (a total of 8521 USD) are made and a repayment obligation of142,017.60 USD accrues in one year. Next, in Step 44, a zero-coupon loanis executed by risk stripping module 5 in which 133,037.54 USD isdeposited at a transfer rate of 6.75% and which therefore yields142,017.60 USD in one year. Netting the transactions executed by riskstripping module 5 at spot, quarterly and at one year, the collateralrisk and the interest rate risk are removed from the trader's gold leasetransaction and the trader is left with a long position of 8980.05 USDand a short position of 42.233 ounces of gold.

[0037] Next, is Step 45, 42.233 ounces of gold (at 210.50 per ounce) isbought for 8890.05 USD at spot. Finally, in Step 46, the remaining FXrisk is removed by selling 90 USD for 154.80 CHF at spot. The result ofthese spot transactions is a net position of 154.8 CHF at spot.

[0038] As in the example of FIG. 3, the risk stripping transactionsexecuted by risk stripping module 5 each have associated therewith aparticular risk factor and each risk stripping transaction is assignedto one of risk books 7 according to the associated risk factor. At thatpoint, the financial institution then performs further hedgingtransactions to hedge the collateral, interest rate and FX riskscontained in collateral risk book 7(3), interest rate risk book 7(2) andFX risk book 7(1), respectively.

[0039] Accordingly, by performing the risk stripping method of thepresent invention, the individual risk factors associated with eachfinancial transaction performed by a trader are removed from thetrader's book and are transferred to a corresponding risk bookmaintained by the financial institution. By aggregating risk factors ofthe same type into a single risk book, the financial institution maythen precisely hedge the aggregated risk of each risk type for all thetransactions performed by traders of the financial institution.

[0040] Based on the above description, it will be obvious to one ofordinary skill to implement the system and methods of the presentinvention in one or more computer programs that are executable on aprogrammable system including at least one programmable processorcoupled to receive data and instructions from, and to transmit data andinstructions to, a data storage system, at least one input device, andat least one output device. Each computer program may be implemented ina high-level procedural or object-oriented programming language, or inassembly or machine language if desired; and in any case, the languagemay be a compiled or interpreted language. Suitable processors include,by way of example, both general and special purpose microprocessors.Furthermore, alternate embodiments of the invention that implement thesystem in hardware, firmware or a combination of both hardware andsoftware, as well as distributing modules and/or data in a differentfashion will be apparent to those skilled in the art and are also withinthe scope of the invention. In addition, it will be obvious to one ofordinary skill to use a conventional database management system such as,by way of non-limiting example, Sybase, Oracle and DB2, as a platformfor implementing the present invention.

[0041] It will thus be seen that the objects set forth above, amongthose made apparent from the preceding description, are efficientlyattained and, since certain changes may be made in carrying out theabove process, in a described product, and in the construction set forthwithout departing from the spirit and scope of the invention, it isintended that all matter contained in the above description shown in theaccompanying drawing shall be interpreted as illustrative and not in alimiting sense.

[0042] It is also to be understood that the following claims areintended to cover all of the generic and specific features of theinvention herein described, and all statements of the scope of theinvention, which, as a matter of language, might be said to falltherebetween.

1. A method for managing risk associated with at least one financialtransaction, each of said at least one financial transaction having atleast a first risk factor and a second risk factor, the methodcomprising the steps of: a) receiving one of said at least one financialtransactions; b) transferring said first risk factor to a first riskbook; c) transferring said second risk factor to a second risk book. d)receiving another of said at least one financial transactions; and e)repeating steps b-d for each of said at least one financialtransactions.
 2. The method of claim 1, wherein said first risk factoris an interest rate risk and said first risk book is an interest raterisk book.
 3. The method of claim 2, wherein said second risk factor isan FX risk and said second risk book is an FX risk book.
 4. The methodof claim 1, wherein one of said at least one financial transactions hasa third risk factor and wherein following the step of transferring saidsecond risk factor the method further includes the step of: c.1)transferring said third risk factor to a third risk book.
 5. The methodof claim 4, wherein one of said at least one financial transactions hasa fourth risk factor and wherein following the step of transferring saidthird risk factor the method further includes the step of: c.2)transferring said fourth risk factor to a fourth risk book.
 6. Themethod of claim 4, wherein said third risk factor is a collateral riskand said third risk book is an collateral risk book.
 7. The method ofclaim 5, wherein said fourth risk factor is a volatility risk and saidfourth risk book is a volatility risk book.
 8. The method of claim 4,wherein said first risk factor is an interest rate risk and said firstrisk book is an interest rate risk book.
 9. The method of claim 8,wherein said second risk factor is a collateral risk and said secondrisk book is a collateral risk book.
 10. The method of claim 9, whereinsaid third risk factor is a volatility risk and said third risk book isa volatility risk book.
 11. The method of claim 4, wherein said firstrisk factor is an interest rate risk and said first risk book is aninterest rate risk book.
 12. The method of claim 11, wherein said secondrisk factor is a volatility risk and said second risk book is avolatility risk book.
 13. The method of claim 12, wherein said thirdrisk factor is an FX risk and said third risk book is an FX risk book.14. The method of claim 4, wherein said first risk factor is an FX riskand said first risk book is an FX risk book.
 15. The method of claim 14,wherein said second risk factor is a collateral risk and said secondrisk book is a collateral risk book.
 16. The method of claim 15, whereinsaid third risk factor is a volatility risk and said third risk book isa volatility risk book.
 17. The method of claim 3, wherein one of saidat least one financial transaction is an FX forward contract between afirst currency and a second currency, said FX forward contract having adelivery date, and wherein the step of transferring said first riskfactor includes the steps of: borrowing money in said first currency tobe payable on said delivery date; and depositing money in said secondcurrency to be received on said delivery date; and wherein the step oftransferring said second risk factor includes the step of: executing aspot transaction between said first currency and said second currency.18. The method of claim 4, wherein one of said at least one financialtransactions is a gold lease having a delivery date and providingperiodic interest payments in a first currency, and wherein the step oftransferring said first risk factor include the step of: executing azero-coupon gold deposit to be payable on said delivery date; whereinthe step of transferring said second risk factor include the steps of:executing a note being due on said delivery date, said note requiringperiodic interest payments to be made in said first currency; andexecuting a zero-coupon loan in said first currency to be paid on saiddelivery date; and wherein the step of transferring said third riskfactor includes the step of: executing a spot transaction between saidfirst currency and a second currency.
 19. The method of claim 1, furthercomprising the steps of: hedging said first risk factor included in saidfirst risk book; and hedging said second risk factor included in saidsecond risk book.
 20. The method of claim 4, further comprising the stepof: hedging said third risk factor included in said third risk book. 21.The method of claim 5, further comprising the step of: hedging saidfourth risk factor included in said fourth risk book.
 22. A system formanaging risk, the system comprising: at least one trader book, said atleast one trader book including a plurality of transactions wherein eachof said plurality of financial transactions has a first risk factor anda second risk factor; at least a first risk book and a second risk book;and a risk stripping module, said risk stripping module incommunications with said at least one trader book and with said firstrisk book and second risk book; wherein when said risk stripping modulereceives each of said plurality of transactions, said risk strippingmodule executes a first hedging transaction for transferring said firstrisk factor to said first risk book and a second hedging transaction fortransferring said second risk factor to said second risk book.
 23. Thesystem of claim 22, wherein said first risk factor is an interest raterisk and said first risk book is an interest rate risk book.
 24. Thesystem of claim 23, wherein said second risk factor is an FX risk andsaid second risk book is an FX risk book.
 25. The system of claim 22,further comprising a third risk book and wherein some of said pluralityof financial transactions have a third risk factor and wherein said riskstripping module executes a third hedging transaction for transferringsaid third risk factor to said third risk book.
 26. The system of claim25, further comprising a fourth risk book and wherein some of saidplurality of financial transactions have a fourth risk factor andwherein said risk stripping module executes a fourth hedging transactionfor transferring said fourth risk factor to said fourth risk book. 27.The system of claim 25, wherein said third risk factor is a collateralrisk and said third risk book is an collateral risk book.
 28. The systemof claim 26, wherein said fourth risk factor is a volatility risk andsaid fourth risk book is a volatility risk book.
 29. The system of claim25, wherein said first risk factor is an interest rate risk and saidfirst risk book is an interest rate risk book.
 30. The system of claim29, wherein said second risk factor is a collateral risk and said secondrisk book is a collateral risk book.
 31. The system of claim 30 whereinsaid third risk factor is a volatility risk and said third risk book isa volatility risk book.
 32. The system of claim 25, wherein said firstrisk factor is an interest rate risk and said first risk book is aninterest rate risk book.
 33. The system of claim 32, wherein said secondrisk factor is a volatility risk and said second risk book is avolatility risk book.
 34. The system of claim 33, wherein said thirdrisk factor is an FX risk and said third risk book is an FX risk book.35. The system of claim 4, wherein said first risk factor is an FX riskand said first risk book is an FX risk book.
 36. The system of claim 35,wherein said second risk factor is a collateral risk and said secondrisk book is a collateral risk book.
 37. The system of claim 36, whereinsaid third risk factor is a volatility risk and said third risk book isa volatility risk book.
 38. The system of claim 24, wherein one of saidplurality of transactions is an FX forward contract between a firstcurrency and a second currency, said FX forward contract having adelivery date, and wherein said first hedging transaction includesborrowing money in said first currency to be payable on said deliverydate and depositing money in said second currency to be received on saiddelivery date and wherein said second hedging transaction includesexecuting a spot transaction between said first currency and said secondcurrency.
 39. The system of claim 25, wherein one of said plurality oftransactions is a gold lease having a delivery date and providingperiodic interest payments in a first currency, and wherein said firsthedging transaction includes executing a zero-coupon gold deposit to bepayable on said delivery date, said second hedging transaction includesexecuting a note being due on said delivery date, said note requiringperiodic interest payments to be made in said first currency, andexecuting a zero-coupon loan in said first currency to be paid on saiddelivery date and wherein said third hedging transaction includesexecuting a spot transaction between said first currency and a secondcurrency.
 40. The system of claim 22, wherein said first risk factorincluded in said first risk book and said second risk factor included insaid second risk book are hedged.
 41. The system of claim 25, whereinsaid third risk factor included in said third risk book is hedged. 42.The system of claim 26, wherein said fourth risk factor included in saidfourth risk book is hedged.
 43. A method for managing risk associatedwith a financial transaction, said financial transaction having at leasta first risk factor and a second risk factor, the method comprising thesteps of: transferring said first risk factor to a first risk book;transferring said second risk factor to a second risk book.
 44. Themethod of claim 43, wherein said first risk factor is an interest raterisk and said first risk book is an interest rate risk book.
 45. Themethod of claim 44, wherein said second risk factor is an FX risk andsaid second risk book is an FX risk book.
 46. The method of claim 43,wherein said financial transaction has a third risk factor and whereinthe method further includes the step of: transferring said third riskfactor to a third risk book.
 47. The method of claim 46, wherein saidfinancial transactions has a fourth risk factor and wherein the methodfurther includes the step of: transferring said fourth risk factor to afourth risk book.
 48. The method of claim 46, wherein said third riskfactor is a collateral risk and said third risk book is an collateralrisk book.
 49. The method of claim 47, wherein said fourth risk factoris a volatility risk and said fourth risk book is a volatility riskbook.